Mason Financial Services, Inc.https://www.ensenmasoncpa.com
Redlands' Tax Preparation & Financial AdvisorWed, 01 Feb 2017 20:44:39 +0000en-US
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3232What is the Best Age to Start Drawing Social Security?https://www.ensenmasoncpa.com/saving/best-age-start-drawing-social-security/
https://www.ensenmasoncpa.com/saving/best-age-start-drawing-social-security/#respondWed, 01 Feb 2017 20:26:33 +0000https://ensenmasoncpa.com/?p=303One of the most common and most difficult questions clients ask me it when should they start their social security benefits. It is an important question in that social security represents a significant amount of money over the course of your retirement. The amount of money you have coming into your household each month will […]

]]>One of the most common and most difficult questions clients ask me it when should they start their social security benefits. It is an important question in that social security represents a significant amount of money over the course of your retirement. The amount of money you have coming into your household each month will affect how you can spend your retirement years. It is a difficult question because one of the most important factors in the decision is unknown – how long you will be collecting it.

There are other factors, however, which are known. To properly frame the decision, there are generally three choices – collect as soon as you’re eligible, usually 62, at the full retirement age of 66 or when you are eligible for the maximum benefit at age 70. Taking benefits early can make sense, as we do not know what the future holds. Two-thirds of Americans take this route, but how much earlier? If you wait, your benefit will increase by roughly 6% for each year (pro-rated by month). Is that enough to make it worth waiting, providing you are able to do so? My advice in general is if there is not a good reason to wait, take it as soon as you can. The reason is simple – we do not know what the future holds. If you wait until full retirement age, you would receive roughly 30% more benefit. I did the math for you – waiting until full retirement age would require receiving benefits until age 77 before you broke even.

In other words, if you should pass away before age 77, you would have received more by taking benefits at 62. What about waiting until 70? Not only do you get the full benefit, but you would receive an additional 24% – 8% per year. The benefit looks nice when looking at the dollar amounts, but you would have to live until you were 80 to make it break even. There is more to the decision than just getting the most out of your benefits. Hopefully, you have other retirement assets that will help you live comfortably. The projected growth, liquidity and taxability of these assets need to be taken into when planning the best strategy.

Finally, many of us are continuing to work into our retirement years, either out of a desire to be productive or out of necessity. If you draw benefits before your full retirement age while still working, you may need to pay some of them back. For every $2 you earn over $15,480, you will have to pay back $1 of benefits. This alone may be a good reason to delay starting benefits. Once benefits have commenced, you cannot stop them or put them on hold. So, if there is a chance you may want or need to return to the work force and earn more than a minimal amount of money, delaying your benefits may be the right move.

As with most things financial, the right move depends on a number of factors. A good financial planner and tax professional should be part of this complex planning process. The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on your taxes, your investments, the law or any other business and professional matters that affect you and/or your business.

]]>https://www.ensenmasoncpa.com/saving/best-age-start-drawing-social-security/feed/0Do I Need a Living Trust?https://www.ensenmasoncpa.com/wills-trusts/wills-and-trusts/
https://www.ensenmasoncpa.com/wills-trusts/wills-and-trusts/#respondWed, 01 Feb 2017 20:19:27 +0000https://ensenmasoncpa.com/?p=297Considering what may happen after we are gone is not a pleasant thought. But, as the saying goes, death and taxes are unavoidable. In both cases, planning ahead can save time, trouble and money. While estate planning can be extremely complex, getting started with the basic components is not too difficult and is the extent […]

]]>Considering what may happen after we are gone is not a pleasant thought. But, as the saying goes, death and taxes are unavoidable. In both cases, planning ahead can save time, trouble and money. While estate planning can be extremely complex, getting started with the basic components is not too difficult and is the extent of estate planning required for a large percentage of people. By planning ahead, you will make a difficult time easier on those left behind as well as potentially saving thousands in attorney fees and court costs.

The most common and basic estate planning vehicles are wills and living trusts. Everybody should have a will or a living trust, but which one? The rule of thumb I use with my clients is if you have any significant assets that cannot have a named beneficiary, such as real estate, you should probably have a living trust. Some people believe they can get around having a living trust by adding their beneficiaries to the title. While this works, providing the titling is appropriate, you give up a very important tax benefit – the step-up in basis. This tax benefit can eliminate some or all of the tax that would otherwise be due on the sale of the property. For this reason, owning any real estate is a good reason to have a living trust.

The same applies to stock and other securities held outside of a retirement account. Retirement accounts can have named beneficiaries, making living trusts less necessary in those cases. If you conclude a living trust would be a good idea, how do you go about setting it up? As with most things, there are different options available, with different costs and levels of service. There are legal services, both online and in person, that can produce basic trusts for minimal cost. These services are not attorneys and cannot provide any advice or guidance. You can expect to pay $250-$750 for this type of service. At the other end of the spectrum are estate attorneys that can develop a trust customized for you and your situation. When you work with an attorney, not only can be you be more comfortable that everything was addressed and done right, you have a relationship with somebody who can answer questions and provide services in the future.

If you do not need or wish to have a trust, you should have a will at a minimum. There are many ways to go about creating a will. California law provides for a “fill-in-the-blank” will. You can find the form and information here. A little planning and forethought today can save your loved ones considerable grief and expense. You should always consider speaking to a qualified estate tax attorney if you have questions or concerns.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on your taxes, your investments, the law or any other business and professional matters that affect you and/or your business.

]]>https://www.ensenmasoncpa.com/wills-trusts/wills-and-trusts/feed/0Planning and Saving for Collegehttps://www.ensenmasoncpa.com/college-bound/college-saving/
https://www.ensenmasoncpa.com/college-bound/college-saving/#respondWed, 01 Feb 2017 18:15:50 +0000https://ensenmasoncpa.com/?p=282As a CPA, I am asked a lot of questions regarding tax benefits and credits for children. One of the more interesting questions I have heard is “Why do they take away benefits as the kids get older? They don’t cost less, they cost more – a lot more”. While I don’t really have a […]

]]>As a CPA, I am asked a lot of questions regarding tax benefits and credits for children. One of the more interesting questions I have heard is “Why do they take away benefits as the kids get older? They don’t cost less, they cost more – a lot more”. While I don’t really have a good answer, one thing I do explain is that there are different benefits and credits that apply to older children as it pertains to their college education.

One of the biggest decisions in a person’s life is what college to attend – or whether to attend at all. The decision and the subsequent attendance and performance will likely have more of an impact on their overall comfort and life style than any other event or decision in their lives. That’s a lot of pressure and responsibility for our youth. One factor that should not affect the outcome is money but, of course, it does. Many kids have to settle for community college or a local university when they may have done something very different if money wasn’t a factor.

Kids that choose to not to settle for less, and instead attend the school of their dreams, often receive more than a degree and an education. They begin their lives deeply in debt. Today, four years at a private university will run around $116,600. For a child born today, it is projected that the cost when they turn 18 will be $332,800. A public university will be about $87,200 – still prohibitively expensive for many.

529 Plans & Coverdell Plans
With this in mind, congress gave us an incentive to save for our children’s education. They are known as 529 plans and Coverdell plans. While there are differences, they both have the same basic features. If you are familiar with Roth IRA’s, you already have a grasp on the benefits. The concept is that you contribute after-tax dollars (you don’t receive any present tax benefit). The money is invested and grows tax free. When the apple of your eye is ready to use the funds for education, they are withdrawn free of tax. If the withdrawn funds are used for other purposes, tax and penalty will apply.

You may be wondering what happens if your child doesn’t go to college or doesn’t use all of the funds. They can be transferred to another sibling or even to your grandchildren. I like to encourage my clients to make this point known to their child. If they choose to go to school, there is money set aside for it. If they don’t, somebody else will be using their money. While the 529 and Coverdell plans provide incentives to save for college expenses, once the time comes, there are credits and deductions to help offset the costs.

Education Credits
There are two education credits and two types of deductions that can be taken. All of these have income limits, so you may not be eligible for the full amount or any if your income is above certain thresholds. The American Opportunity Tax Credit provides a maximum credit of $2,500, up to $1,000 is refundable, meaning you may receive a check for it even if you don’t owe any taxes. It’s available for the first four years of college.

Beyond that point, the Lifetime Learning Credit is available for any other education a student may pursue. The Lifetime Learning Credit provides a maximum credit of $2,000 and has no limit to the number of years it may be claimed. In lieu of the credits, you may opt to claim up to $4,000 in tuition and fees as an adjustment to income. Finally, any student loan interest you may pay can be claimed as an adjustment. You should receive tax forms from the educational institutions and financial institutions that will provide you with the amount of qualifying expenses. In some cases, you can add other costs to these amounts, such as books, computers and supplies. Which credits and/or adjustments to claim to maximize your tax benefit can be complex. Be sure to consult with a tax professional in order to claim the maximum benefits available to you.

]]>https://www.ensenmasoncpa.com/college-bound/college-saving/feed/0When to Begin Savinghttps://www.ensenmasoncpa.com/saving/when-to-begin-saving/
https://www.ensenmasoncpa.com/saving/when-to-begin-saving/#respondTue, 24 Jan 2017 20:27:51 +0000https://ensenmasoncpa.com/?p=256We are living longer. Some believe that the first person that will live until 150 is alive today. It is not unreasonable to believe that people will spend upwards of 50 years in retirement – more years than they spend working. What kind of life will they lead? What options will they have to get […]

]]>We are living longer. Some believe that the first person that will live until 150 is alive today. It is not unreasonable to believe that people will spend upwards of 50 years in retirement – more years than they spend working. What kind of life will they lead? What options will they have to get the most out of all of those decades? The decisions they make today will have a huge impact on their lives later.

When I speak to people about their retirement, I often don’t get much interest from the under 40 crowd, but once people pass that mile stone, they become more interested. By 50, the interest turns to fear. That’s a shame. I wish more parents would speak to their children about the importance of a savings habit and starting young. I understand how far away it can seem to a young person. My hope in writing this article is to share the benefits and importance of starting today.

HOW TO BEGIN SAVING.
Many don’t know how to get started. The short answer is it doesn’t really matter. There are many investment companies available online and in person that would be happy to help you get started. Even a bank is a fine way to take the first step. Do you open a Roth or a traditional IRA? A general rule of thumb is a Roth, if you don’t need the present tax benefits, an IRA if you do. The Roth allows your money to grow without ever paying tax on the earnings. An IRA allows you to take a tax deduction for the contribution in most circumstance, allowing you to save more than you otherwise would be able to.

START NOW.
Now that we’re past the boring stuff, let’s talk about the fun part. Why start saving today? Why not in 10 or 20 years when you’re making more and can better afford it? The selection of proper investments is beyond the scope of this article, but for purposes of our example, let’s use the S&P 500 index. The very long term historical return from 1928 through 2014 is 10%. Nobody knows what the future holds, but we’re simply looking for the impact of starting early.

MEET YOUNG, MIDDLE, and LATE.
We have three savers, we’ll call them Young, Middle, and Late. All three put exactly the same amount of money in for exactly the same period of time – $6,000 (Note: the present limit is $5,500, but that will likely go up by 2017) a year for 25 years. All three invest in the S&P 500 index and earn 10% and all three retire when they’re 65. The only difference between the three is what age they start.

Let’s start with Late. Late invested a total of $150,000 and retired with $663,429 – a gain of $513,429. Which proves that is really is never too late. The monthly equivalent of a car payment can make the difference between a meager retirement and being able to do the things you would like to.

Moving on to Middle, the same investment that provided Late with $663,000 provides $1.8 million. If that’s not eye popping enough for you, our very responsible Young retires with close to $5 million. From $150,000.

Einstein is said to have said, “The power of compounding interest is the most powerful force in the universe”. This is what he meant.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on your taxes, your investments, the law or any other business and professional matters that affect you and/or your business.

]]>https://www.ensenmasoncpa.com/saving/when-to-begin-saving/feed/0Protect Yourself from Identity Thefthttps://www.ensenmasoncpa.com/identity-fraud-protection/identity-theft/
https://www.ensenmasoncpa.com/identity-fraud-protection/identity-theft/#respondSun, 01 Feb 2015 20:09:34 +0000https://ensenmasoncpa.com/?p=293With the holiday shopping season now safely behind us, some of our thoughts and concerns may turn to our finances. Besides over-eating and running up the credit cards, an all too familiar negative aspect of the holiday season seems to be identity theft. Many of us, myself included, believed that if we were careful with […]

]]>With the holiday shopping season now safely behind us, some of our thoughts and concerns may turn to our finances. Besides over-eating and running up the credit cards, an all too familiar negative aspect of the holiday season seems to be identity theft. Many of us, myself included, believed that if we were careful with shredding documents, safeguarding passwords and being careful about giving our social security number out, we should be reasonably safe from identity theft and fraudulent charges on our accounts.

On black Friday, forty million Target customers had their data stolen by hackers, through no fault of the victims. The stolen data included customer names, card numbers, expiration dates and the CVV codes – pretty much everything a thief needs to make unauthorized charges. More sophisticated thieves can create new debit and credit cards from the information. What can one do to prevent identity theft or minimize the exposure to risk? The more common methods are still valid and should be followed. Any document with sensitive information should be shredded. If you are comfortable with electronic documents and are careful with their storage, they can provide more security and convenient access in addition to saving trees.

If anybody requests your social security number, be sure you understand why they need it and what they will do with it. Only access online accounts from trusted computers and devices. Be especially cautious about using portable devices to store and access sensitive information. Many can be easily hacked, while others do not even need to be hacked as many people do not password protect their devices. Debit cards pose a special threat that should be discussed separately. Many people do not realize that they offer significantly less protection than credit cards do. Yes, they are convenient and can help prevent run away credit card debt. Credit card users are not liable for more than $50 in fraudulent charges, provided the consumer reports lost or stolen cards promptly. Most banks and lenders will even pick up the $50 as a service to their customers. Debit cards, on the other hand, could expose the consumer to $500 or more of risk. To add insult to injury, the banks will often not credit anything until they investigate. As most of us pay our mortgage payments, rent and car payments out of the same account that is connected to our debit cards, this could cause real trouble.

For your day-to-day purchases, consider using a credit card. If you do not have the creditworthiness to obtain one, consider getting a pre-paid card. And if that’s not a possibility, consider keeping bill money in a separate account, such as a savings account, until you’re ready to pay bills. Another important step to take is to be aware of the activity in your account. There are endless ways of doing this. Many simply make it a habit to log in to their online account regularly. That, of course works, but can be time consuming, especially if you have many accounts. There are automated ways to keep an eye on your account, some free, some not. Intuit’s Quicken can keep itself updated even when you’re not using the software. There are apps and widgets included with Quicken that make it a snap to see what is going on across all of your accounts. Of course, make sure any device that uses these services are password protected and use any optional security the software allows you to use. There are free options available as well, such as mint.com.

Finally, what should be done if you do detect fraudulent activity? The first thing is to contact the financial institutions and either verify the account is secure or change accounts and/or cards. The next thing is to check your credit report for any fraudulent activity – something that should be done periodically, anyway. You can receive free credit reports from all 3 bureaus at annualcreditreport.com. There are also a multitude of various credit monitoring services and ID theft companies that may prove valuable.

While our modern age has provided countless conveniences and tools, it has also created new responsibilities and risks. By being aware of how to properly handle sensitive financial issues, significant difficulties and hardships can be avoided. The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on your taxes, your investments, the law or any other business and professional matters that affect you and/or your business.

]]>https://www.ensenmasoncpa.com/identity-fraud-protection/identity-theft/feed/0Letters from the IRShttps://www.ensenmasoncpa.com/tax-planning/letters-from-the-irs/
https://www.ensenmasoncpa.com/tax-planning/letters-from-the-irs/#respondMon, 01 Jul 2013 20:00:30 +0000https://ensenmasoncpa.com/?p=290What To Do With A Letter From the IRS I’ve been in the tax business for over 25 years, but when I go to the mailbox and find a letter from the IRS, I still get a tinge of fear. I’m sure they have a similar effect on you. And unless you are among the […]

]]>What To Do With A Letter From the IRS
I’ve been in the tax business for over 25 years, but when I go to the mailbox and find a letter from the IRS, I still get a tinge of fear. I’m sure they have a similar effect on you. And unless you are among the lucky few, sooner or later you’ll get one. What should you do when you receive one?

The first thing you should do is read it. That may sound funny, but most phone calls I get from clients when they receive this letter goes something like this: “I got a letter from the IRS, what do I do???”; “What does it say?”; “I have no idea!”. Tax topics seem foreign to most people – but the letters usually have some semblance of English in them and most folks can understand the basic gist once they make an effort.

The next thing is to take some action. Again, it may seem common sense to you, but many people will ignore it. Most letters do require some action on your part and have a deadline to do so. If you don’t respond, the IRS will respond for you and you can bet it won’t be in your best interest. There are different types of letters you may receive. The most common letter is known as the “CP2000.” You receive tax forms from various payers and payees telling you what they have reported to the IRS. The IRS has a program they refer to as the CP2000 program that matches all of these numbers.

With all the stuff most of us have in our financial lives, it’s easy to miss one of those little forms, or to have something misreported. Most of the time, the IRS is right on these issues and the only thing left for us to do is to verify it, and to pay the bill. Another common letter that goes out frequently simply asks for a tax return. Some folks are lucky enough to have arrived at a point in their lives where they simply no longer have to file. Or perhaps you just forgot, or procrastinated.

Your Response
Whatever the situation is, you do need to respond to this letter with either a filed tax return or an explanation of why one is not required. The last notice I’ll discuss is not nearly as common but far more dreaded – the audit notice. They call it an examination letter. It will tell you exactly what they will be looking at and when they plan to perform the “examination”. For most people, there is usually a large sum of money at stake at this point and hiring somebody is advisable.

Most tax professionals will charge a minimal fee to talk to you about what to expect and to provide some pointers to help you prepare. Certified Public Accountants and Enrolled Agents can even go to the audit for you, if you prefer. The best way to deal with correspondence with the IRS is simply to not be contacted in the first place. Whether you prepare your tax return yourself or hire somebody to prepare it for you, always review it for completeness and accuracy.

Finding Professional Help
Remember, even if somebody produced the forms, you’re still responsible for what is on them. If you are unsure, many tax preparation services will review the return for free. Audits may happen, even if you do everything right. The best defense against them is proper record keeping and documentation. An audit can be very quick and easy if the tax payer is organized and complete in their record keeping duties. Whatever the situation is, you don’t have to face it alone. There are many qualified tax professionals available to help you resolve whatever problems that may arise.
The best way to find somebody is usually to ask friends and family who they use and if they’re happy with them. Another way is to simply use the phone book or internet to find a firm that is close to you and schedule a consultation. You can do that with as many professionals as you need to until you find somebody you’re comfortable with.

]]>https://www.ensenmasoncpa.com/tax-planning/letters-from-the-irs/feed/0Understanding Health Savings Accountshttps://www.ensenmasoncpa.com/health-savings-accounts/understanding-health-savings-accounts/
https://www.ensenmasoncpa.com/health-savings-accounts/understanding-health-savings-accounts/#respondWed, 01 May 2013 19:29:31 +0000https://ensenmasoncpa.com/?p=258There has been a lot of discussion lately about how to solve the crisis of rising health insurance and the growing number of uninsured. I don’t know about you, but none of the solutions sound very good to me. At best, universal healthcare seems to be marginally effective at best where it’s been implemented. Having […]

]]>There has been a lot of discussion lately about how to solve the crisis of rising health insurance and the growing number of uninsured. I don’t know about you, but none of the solutions sound very good to me. At best, universal healthcare seems to be marginally effective at best where it’s been implemented. Having people without health care in a society as affluent as ours is distasteful. The taxpayers footing the bill for those who can’t or won’t have health insurance is aggravating. Are there any good solutions? I think there is – but nobody is talking about it.

The answer is to put the consumer back in the driver’s seat. Capitalism and the competition that results is the best economic system in the world. As consumers, we control what is produced and at what price by the way we choose to spend our money. That system of checks and balances has been surgically removed from the medical system. The result is out of control costs, unnecessary procedures, amazingly expensive drugs coming on the market almost daily, and the resulting increasing insurance costs.

Health Savings Accounts combine much less expensive High Deductible Health Policy (HDHP) with a Health Savings Account (HSA). The basic idea is that your health expenditures will be similar to having a co-pay HMO, but instead of 100% of your money going to the insurance company, about half of it goes to your HSA. This money is used to pay for most of your medical costs with the insurance kicking in for the big expenses. Hopefully, you generally stay healthy and keep your health costs down. If so, you’re rewarded with having a growing balance in your HSA that someday becomes another source of retirement funds. Benefits to individuals include having most health costs covered by the HSA and insurance, 100% of medical costs become deductible.

All of the money that goes into the HSA is deductible, invested funds grow tax-free (or tax-deferred) and distributions are tax free when used for medical purposes. Many people believe that medical expenses are deductible. They were once. Some time ago, they were severely limited. The first 7 ½% of your income gets deducted from any medical costs to determine what portion is deductible. For most people, this means that no expenses are deductible.

By running your medical costs through an HSA, all expenses become effectively deductible. This benefit alone should be enough to convince many people to consider using an HSA. Converting or starting an HSA is easier than you would think. If you already have health coverage, call your carrier and ask for quotes for their HSA approved plans – most insurers have two or three. If you don’t have insurance presently, shop around for quotes from reputable insurance companies.

Alternatively, you can go to any of the several good websites for quick quotes from a broad range of companies. The Affordable Care Act did make some changes to Health Savings Accounts. Premature distributions that are not spent on qualified medical costs now carry a higher penalty and over-the-counter medicines do not qualify unless prescribed by a doctor. For the most part, the Act left Health Savings Accounts intact. HSAs have the potential of radically changing the face of health care while at the same time providing individuals and families with amazing savings – both in health costs and taxes.

You might be wondering “Why have I never heard of this before?” I’m not sure, but my theory is money. Insurers make money from premiums. Agents and brokers make money from premiums. If you’re putting half of your dollars in your own account, everybody makes less. So stop making everybody else rich and start keeping more of your health dollars in your bank account. Different tax situations require different solutions. As always, check with your tax and insurance professionals and to learn about the benefits and limitations of high deductible health plans and Health Savings Accounts for your particular situation.

]]>https://www.ensenmasoncpa.com/health-savings-accounts/understanding-health-savings-accounts/feed/0When Does Incorporation Make Sensehttps://www.ensenmasoncpa.com/small-business/when-does-incorporation-make-sense/
https://www.ensenmasoncpa.com/small-business/when-does-incorporation-make-sense/#respondTue, 01 Jan 2013 19:02:39 +0000https://ensenmasoncpa.com/?p=287Understanding Incorporation One of the most misunderstood topics in business is incorporation. There are so many myths and misunderstandings. I would like to take a moment and discuss what a corporation can and cannot do for you. Many beginning business owners become obsessed with details. They want to do things right from the beginning so […]

]]>Understanding IncorporationOne of the most misunderstood topics in business is incorporation. There are so many myths and misunderstandings. I would like to take a moment and discuss what a corporation can and cannot do for you. Many beginning business owners become obsessed with details. They want to do things right from the beginning so they go out and form a corporation, or worse, an LLC. They are under the impression that this is either necessary or a good idea.

For most new businesses, a sole proprietorship makes the most sense. It’s simple, cheap (or free), and is the easiest to undo if the enterprise doesn’t pan out. I think I’ve spent more time undoing corporations that should have never been formed than forming corporations that make good sense. As odd as it may seem, closing a corporation can be costlier than starting one. Many people think that a corporation is necessary for liability protection. I feel that this idea creates a false sense of security for many. In most circumstances, a creditor will require a person to personally guarantee any debts.As far as liability exposure, the protection it provides is limited and is almost non-existent for very small companies. The principals of small corporations will usually be named as defendants in addition to the corporation in the case of a lawsuit. Insurance should always be your first line of defense for liability protection, incorporated or not.

Another misconception is that incorporating in another state saves money. It only saves money if you operate illegally. To be legal to operate an out-of-state corporation in California requires registering as a foreign corporation. Guess how much that costs? The same amount it would cost to be a normal, domestic California corporation. Plus you have to pay the other state’s fees and probably a registered agent fee as well.

Tax Savings & Liability Protection
So why do small enterprises choose to incorporate? The two main reasons are tax savings and liability protection (in some circumstances). I’ve found that the tax savings makes incorporating sensible when the net income passes about $25,000 (depending on the specifics of the business). Others may have their own reasons for incorporating such as status and establishing corporate credit. The important thing before you decide to incorporate is that you clearly understand why it makes sense for you, what the implications are — good and bad, and what the costs are, not just to start it, but to maintain it.

One last thing to cover about incorporating – the relative ease of doing so. There are many legal websites that will form a corporation for you. It’s relatively inexpensive, especially when compared to the cost of maintaining the corporation. The ease and low cost has proven to be a siren song for unwitting new business owners. They punch in their credit card number without knowing what type of corporation they should be or even why they’re doing it in the first place. If you have been incorporated before and know exactly what you’re doing and why and just need a service to file paperwork, these services are fine. If you don’t, it might be worth the extra cost of going through an attorney or a CPA (or both). You may end up doing that anyway – the second time after you discover you probably should have in the first place.

I’ve presented some broad concepts here should not be used to base your decision. My objective was simply to make the reader aware of potential traps. It’s a big step and you should take advantage of the advice of both an attorney and a qualified accountant. Everybody’s situation is unique so it’s impossible to address any particular situation in an article. Which Entity Type Is Best? Sole Proprietorship – Simplest and least expensive; has one owner Partnership – Unincorporated business owned by more than one person C Corporation – Traditional corporation, pays income tax twice S Corporation – Corporation featuring flow through to shareholders and single step taxation Limited Liability Corporation (LLC) – Similar to an S corporation, but taxed differently.